Tort Reform

Texas lawmakers have been working on a so-called tort reform measure that would require losing (and, in some cases winning) litigants to pay the other party’s litigation costs.

In an “emergency session” called by Texas Governor Rick Perry, the Texas House of Representatives enacted HB 274, a loser-pays bill that would allow winning parties to collect litigation costs in breach-of-contract suits or if a judge grants a motion to dismiss. The bill also directs the Texas Supreme Court to develop a rule for the early dismissal of certain civil claims.

The most controversial part of HB 274 is a provision that would award attorneys’ fees to a defendant if if the defendant’s settlement offer is turned down and the jury awards less than 80 percent of the settlement offer. The law currently allows a defendant to recover attorneys’ fees if the jury award is less than 80 percent of the settlement offer, but the defendants’ recovery is limited to less than the amount awarded to the plaintiff. HB 274 removes that limitation and would allow defendants to recover litigation costs that exceed the plaintiff’s recovery. For example, if a plaintiff turned down a defendants’ $50,000 settlement offer and the jury awarded the plaintiff less than $40,000, the plaintiff would have to pay the defendant’s legal costs even if the legal costs exceeded the final award.

After passing the Texas House, the Texas Senate’s State substantially modified HB 274 (C SHB 274 in the Senate). The loser-pays provisions of the Senate bill are: (1) early dismissal of cases with no basis in law or fact on motion and without evidence (with costs and attorneys’ fees to be awarded to the prevailing party) and (2) a revision of the offer-of-settlement rule to allow a defendant to offset the plaintiff’s recovery up to 100 percent of the judgment.

The House loser-pays bill is one of the most Draconian tort reform measures in the United States. It would force consumers and injured people to risk getting stuck with a large corporation’s legal bill to bring a lawsuit in Texas. These legal bills can be substantial. It is not unusual for a large corporation to spend over $1 million defending a case. The prospect of being stuck with a corporation’s $1 million legal bill would deter many people from bringing meritorious claims. That is the real purpose of the House bill—to force people to risk financial ruin to file a lawsuit or to turn down a low-ball settlement offer.

The Senate version of the bill is better than the House version because it limits the loser-pays rule to cases that are dismissed early. And it allows a plaintiff to reject a defendant’s settlement offer without the risk of having to pay legal fees that exceed the judgment obtained by the plaintiff. The Senate version is far from ideal because it is still designed to make it riskier for a plaintiff to bring a lawsuit or to turn down a settlement offer that is too low. But it is clearly the lesser of two evils and is probably the best we can hope for given the current political climate in Texas.